##### 



Exhibit 99.1 e-Smart Technologies, Inc.
(A Development Stage Company) Financial Statements December 31, 2003 and 2002      e-Smart Technologies, Inc.
(A Development Stage Company)
Index to the Financial Statements
December 31, 2003 and 2002 PageIndependent Auditors Report
      
      
      1Financial StatementsBalance Sheets
      
      
      2Statements of Operations
      
      
      3Statements of Cash Flows
      
      
      4Statement of Shareholders Equity
      
      
      5Notes to the Financial Statements
      
      
      6-10




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##### 



Independent Auditors Report To the Board of Directors and Shareholders of
e-Smart Technologies, Inc. (A Development Stage Company) We have audited the balance sheets of e-Smart Technologies, Inc. (A Development
Stage Company) as of December 31, 2003 and 2002 and the related statements of
operations, shareholders equity and cash flows for the years then ended.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of e-Smart Technologies, Inc. (A
Development Stage Company) as of December 31, 2003 and 2002, and the results of
their operations, and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America. As discussed in the notes to the financial statements, the Company is in the
development stage. The development of the Companys technology and its
success of future operations is dependent upon the Companys ability to meet
its future financing requirements. These factors raise substantial doubt
about the Companys ability to continue as a going concern.  
    Bridgewater, New Jersey
March 25, 2004




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##### 



e-Smart Technologies, Inc.
(A Development Stage Company)
Balance Sheets
December 31, 2003 2003
        
        2002AssetsCurrent AssetsCash
        
        $
        14,096
        
        
        $
        1,069Due from Associated
            Business Group, a related party
        
        
        31,334
        
        
        
        40,00045,430
        
        
        
        41,069License of Smart
            Card Technology, net of amortization
        
        
        109,310
        
        
        
        115,740Deposits  e-Smart
            Korea Group
        
        
        151,000
        
        
        
        Total Assets
        
        
        305,740
        
        
        
        156,809Liabilities and Stockholders
            EquityCurrent LiabilitiesAccounts payable
        
        
        397,081
        
        
        
        230,395Notes payable
        
        
        80,000
        
        
        
        150,000Accrued expenses
        
        
        38,853
        
        
        
        14,603Total Liabilities
        
        
        515,934
        
        
        
        394,998Shareholders
            Equity (Deficiency)Common Stock, $0.001
            par value, 300 million shares authorized,170,707,012 and 153,772,993
            shares issued and outstandingin 2003 and 2002,
            respectively
        
        
        170,707
        
        
        
        153,772Additional paid in
            capital
        
        
        59,497,446
        
        
        
        22,714,779Deficit accumulated
            during the development stage
        
        
        (59,878,347
        )
        
        
        (23,106,740
        )Total Shareholders
            Equity (Deficiency)
        
        
        (210,194
        )
        
        
        (238,189
        )Total Liabilities
            and Stockholders Equity (Deficiency)
        
        $
        305,740
        
        
        $
        156,809
 See notes to the financial statements.




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##### 



e-Smart Technologies, Inc.
(A Development Stage Company)
Statements of Operations July 15, 1997(Inception of theDevelopment Stage)Year Ended December 31,
        
        to December 31,2003
        
        2002
        
        2003Revenue
        
        $
        
        
        
        $
        
        
        
        $
        Operating ExpensesResearch and development
        
        
        730,750
        
        
        
        310,000
        
        
        
        1,040,750Selling, general
            and administrative
        
        
        1,841,635
        
        
        
        1,160,559
        
        
        
        3,147,774Issuance of stock
            options for services
        
        
        34,170,000
        
        
        
        21,476,000
        
        
        
        55,646,000Total Operating Expenses
        
        
        36,742,385
        
        
        
        22,946,559
        
        
        
        59,834,524Loss From Operations
        
        
        (36,742,385
        )
        
        
        (22,946,559
        )
        
        
        (59,834,524
        )Interest expense
        
        
        28,972
        
        
        
        12,101
        
        
        
        41,073Loss before provision
            for income taxes
        
        
        (36,771,357
        )
        
        
        (22,958,660
        )
        
        
        (59,875,597
        )Provision for Income
            taxes
        
        
        250
        
        
        
        2,500
        
        
        
        2,750Net Loss
        
        $
        (36,771,607
        )
        
        $
        (22,961,160
        )
        
        $
        (59,878,347
        )Loss Per Share
        
        $
        (0.23
        )
        
        $
        (0.16
        )
        
        $
        (0.51
        )Weighted Average
            Number of Shares Outstanding
        
        
        161,172,213
        
        
        
        147,960,402
        
        
        
        116,832,333
 See notes to the financial statements.




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##### 



e-Smart Technologies, Inc..(A Development Stage Company)
Statements of Cash Flows July 15, 1997(Inception of theDevelopment Stage)Year Ended December 31,
    
    to December 31,2003
    
    2002
    
    2003Cash Flows From Operating ActivitiesNet Loss
    
    $
    (36,771,607
    )
    
    $
    (22,961,160
    )
    
    $
    (59,878,347
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Issuance of stock options for services
    
    
    34,170,000
    
    
    
    21,476,000
    
    
    
    55,646,000Issuance of common stock for services
    
    
    81,250
    
    
    
    85,594
    
    
    
    166,844Amortization expense
    
    
    6,430
    
    
    
    6,430
    
    
    
    19,290Changes in Assets and Liabilities:Decrease (increase) in due
from related party
    
    
    8,667
    
    
    
    (40,000
    )
    
    
    (31,333
    )(Increase) in deposits
    
    
    (151,000
    )
    
    
    
    
    
    
    (151,000
    )Increase in accounts payable
    
    
    166,685
    
    
    
    230,395
    
    
    
    397,080Increase in accrued expenses
    
    
    24,250
    
    
    
    14,603
    
    
    
    38,853Net Cash
Provided by (Used in) Operating Activities
    
    
    (2,465,325
    )
    
    
    (1,188,138
    )
    
    
    (3,792,613
    )Cash Flows from Investing ActivitiesCash used for intangible assets
    
    
    
    
    
    
    
    
    
    
    (128,600
    )Net Cash (Used in) Investing Activities
    
    
    
    
    
    
    
    
    
    
    (128,600
    )Cash Flows From Financing ActivitiesProceeds from common stock issuances
    
    
    2,548,352
    
    
    
    1,039,125
    
    
    
    3,855,309Proceeds from borrowings
    
    
    50,000
    
    
    
    150,000
    
    
    
    200,000Repayment of borrowings
    
    
    (120,000
    )
    
    
    
    
    
    
    (120,000
    )Net Cash Provided by Financing Activities
    
    
    2,478,352
    
    
    
    1,189,125
    
    
    
    3,935,309Net Increase in Cash
    
    
    13,027
    
    
    
    987
    
    
    
    14,096Cash at Beginning of Period
    
    
    1,069
    
    
    
    82
    
    
    
    Cash at End of Period
    
    $
    14,096
    
    
    $
    1,069
    
    
    $
    14,096Supplemental Disclosures of Cash Flow InformationCash paid during the year for:Interest
    
    $
    28,972
    
    
    $
    12,101
    
    
    $
    41,073Income taxes
    
    $
    250
    
    
    $
    2,500
    
    
    $
    2,750Supplemental Schedule of Non-Cash Investing ActivitiesIssuance of common stock for services
    
    $
    81,250
    
    
    $
    85,594
    
    
    $
    166,844Issuance of stock options for services
    
    $
    34,170,000
    
    
    $
    21,476,000
    
    
    $
    55,646,000
 See notes to the financial statements.




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##### 



e-Smart Technologies, Inc.(A Development Stage Company)
Statement of Shareholders Equity (Deficiency) Additional
    
    RetainedCommon Stock

    
    Paid-In
    
    EarningsShares
    
    Amount
    
    Capital
    
    (Deficit)
    
    TotalBalance, January 1, 2002
    
    
    145,117,200
    
    
    $
    145,117
    
    
    $
    122,715
    
    
    $
    (145,580
    )
    
    $
    122,252Issuance of shares for cash
    
    
    7,903,967
    
    
    
    7,904
    
    
    
    1,031,221
    
    
    
    
    
    
    
    1,039,125Issuance of shares for services
    
    
    750,826
    
    
    
    751
    
    
    
    84,843
    
    
    
    
    
    
    
    85,594Issuance of stock options for services
    
    
    
    
    
    
    
    
    
    
    21,476,000
    
    
    
    
    
    
    
    21,476,000Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,961,160
    )
    
    
    (22,961,160
    )Balance, December 31, 2002
    
    
    153,771,993
    
    
    
    153,772
    
    
    
    22,714,779
    
    
    
    (23,106,740
    )
    
    
    (238,189
    )Issuance of shares for cash
    
    
    16,497,519
    
    
    
    16,498
    
    
    
    2,531,854
    
    
    
    
    
    
    
    2,548,352Issuance of shares for services
    
    
    437,500
    
    
    
    437
    
    
    
    80,813
    
    
    
    
    
    
    
    81,250Issuance of stock options for services
    
    
    
    
    
    
    
    
    
    
    34,170,000
    
    
    
    
    
    
    
    34,170,000Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,771,607
    )
    
    
    (36,771,607
    )Balance, December 31, 2003
    
    
    170,707,012
    
    
    $
    170,707
    
    
    $
    59,497,446
    
    
    $
    (59,878,347
    )
    
    $
    (210,194
    )
 See notes to the financial statements.




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##### 



e-Smart Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization e-Smart Technologies, Inc. (the Company) is a Delaware corporation
organized in July 1997 under the name of Boppers Holdings, Inc. The Company
changed its name to e-Smart Technologies, Inc. on October 20, 2000. The Company is a development stage company devoting most of its efforts to
raising capital and research and development of its licensed Smart Card
technology. In October of 2000 the Company acquired e-Smart Systems, Inc., a Nevada
corporation in exchange for 58,600,000 common shares and licensed the Smart
Card technology from Intermarket Ventures, Inc. for 70,000,000 common shares.
As a result of the exchange, the Company owns the exclusive manufacturing and
marketing rights to the Smart Card technology for North America and the
Pacific Rim. Use of Estimates The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates. Net Loss Per Share Loss per share, in accordance with the provisions of Financial Accounting
Standards Board No. 128, Earnings Per share, is computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. Any common stock equivalents outstanding during the period would have
had an anti-dilutive effect. Research and Development Costs Research and development costs are charged to operations as incurred and
amounted to $730,750 and $310,000 in 2003 and 2002, respectively. License Costs On October 20, 2000, the Company licensed the Smart Card technology. The
technology was purchased for an aggregate of 128,600,000 common shares of the
Company valued at $0.001 per share or $128,600 as the total agreed upon
consideration. The cost of the license is being amortized over its twenty
year term on a straight line basis. Securities Issued for Services The Company accounts for stock issued for services under the intrinsic
value method. For stock issued for services, the fair market value of the
companys stock on the date of stock issuance is used. The Company has
adopted Statement of Financial Accounting Standard (SFAS) No. 123, Accounting
for Stock-Based Compensation. The statement generally suggests, but does not
require, stock-based compensation transactions to be accounted for based on
the fair value of the services rendered or the fair value of the equity
instruments issued, whichever is more reliably measurable. Securities issued
for services to a related party amounted to 750,826 in 2002 and 437,500 in
2003. The underlying fair value of the common shares amounted to $0.114 and
$0.186 per share, respectively.




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##### 



e-Smart Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes In accordance with the provisions of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS No. 109), deferred taxes are recognized
for operating loses that are available to offset future taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to realized. The Company incurred net operating
losses for financial-reporting and tax-reporting purposes. Accordingly, the
benefit from income taxes has been offset by a valuation allowance against the
related deferred tax asset. 2. CONCENTRATIONS OF CREDIT RISK The Company maintains cash balances in financial institutions which are insured
by the Federal Deposit Insurance Corporation up to $100,000. Balances in these
accounts may, at times, exceed the federally insured limits. 3. LICENSES By virtue of the merger with e-Smart Systems, Inc. in October 2000, the Company
has licensed the exclusive manufacturing and marketing rights to certain Smart
Card technology from Intermarket Ventures, Inc. The licensed territory
includes North America and the Pacific Rim for a period of 20 years. The
acquisition cost of the licensed territory, 128,600,000 common shares at $.001
par value, is being amortized over the term of the agreement. 4. DEPOSITS At December 31, 2003, the Company had advanced $151,000 to South Korean counsel
for the purpose of forming and capitalizing a South Korean corporation to
facilitate its planned new business operations in the Pacific Rim during 2004.
The new corporation will be styled e-Smart Korea, Inc. 5. NOTES PAYABLE Notes payable consist of the following: 2003
    
    2002Unsecured obligations
bearing interest at 20%
initially due January 31,
2004, extended to July 31, 2004
    
    $
    30,000
    
    
    $
    150,000Unsecured demand obligation
with interest at 10%
    
    
    50,000
    
    
    
    Total
    
    $
    80,000
    
    
    $
    150,000




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##### 



e-Smart Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements 6. ACCRUED EXPENSES Accrued expenses are as follows: 2003
    
    2002Interest
    
    $
    36,103
    
    
    $
    12,103Franchise taxes
    
    
    2,750
    
    
    
    2,500Total
    
    $
    38,853
    
    
    $
    14,603
 7. INCOME TAXES The Companys total deferred tax asset and valuation allowance are as follows
at December 31, 2003: 2003
    
    2002Total deferred tax asset, current
    
    $
    1,040,000
    
    
    $
    593,000Less valuation allowance
    
    
    1,040,000
    
    
    
    593,000Net deferred tax assets, current
    
    $
    
    
    
    
    
 The differences between income tax benefits in the financial statements and the
tax benefit computed at the U.S. Federal statutory rate of 34% at December 31,
2003 are as follows: 2003
    
    2002Tax benefit
    
    
    34
    %
    
    
    34
    %Valuation allowance
    
    
    (34
    )
    
    
    (34
    )Effective tax rate
    
    
    
    %
    
    
    
    %
 At December 31, 2003, the Company has available $4,000,000 of net operating
losses to carryforward which may be used to reduce future federal taxable
income and expire December 31, 2023. 8. COMMON STOCK On December 1, 2003, the Companys majority shareholders authorized the
Companys common stock to be increased from 200,000,000 to 300,000,000,
approved the creation of the 2003 Incentive Stock Option Plan in the aggregate
amount of 75,000,000 shares and the grant of 30,000,000 options thereunder,
subject to the filing of an information statement with the remaining
shareholders. Accordingly, at December 31, 2003 the Company had 170,707,012
common shares outstanding, options to acquire 30,550,000 common shares at an
exercise price of $1.00 per share pursuant to the 2003 Plan, and options to
acquire 59,000,000 common shares at an exercise price of $.41 per share
pursuant to the 2001 Plan. In addition, there were outstanding warrants to
purchase 1,096,701 common shares at a price ranging from $.50 to $1.00 expiring
through February 2006. At December 31, 2002, of the Companys 300,000,000 authorized shares, $.001 par
value, there were 153,771,993 shares outstanding and options to purchase
59,000,000 shares at an exercise price of $.41 pursuant to the 2001 Plan.
Additionally, there were warrants outstanding to purchase 820,000 common shares
at $1.00 expiring through February 2006.




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##### 



e-Smart Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements 8. COMMON STOCK (continued) (Brief Description of Both Plans) A summary of the stock option activity for the years ended December 31, 2003
and 2002 pursuant to the terms of both plans is set forth below: Number of
    
    Weighted AverageOptions
    
    Exercise PriceOptions in thousandsOptions outstanding at January 1, 2002
    
    
    
    
    
    $
    Granted
    
    
    59,000
    
    
    
    0.41Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Options outstanding at January 21, 2003
    
    
    59,000
    
    
    
    0.41Granted
    
    
    30,000
    
    
    
    1.00Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Options outstanding at December 31, 2003
    
    
    89,000
    
    
    $
    0.61
 The fair value of the options granted in 2003 and 2002 were $21,416,000 and
$34,170,000, respectively. The fair value was determined as of the date of the
grant using the Black-Scholes stock option pricing model, based on the
following assumptions: annual expected return of 0%, annual volatility of 188%
in 2003 and 194.1% in 2002, based upon a risk-free interest rate of 2.4% in
2003 and 3.6% in 2002. The per share fair value of stock options granted during 2003 and 2002 were
$1.14 and $0.36, respectively. The per share contractual remaining life of the
options outstanding at December 31, 2003 and 2002 were 5 years and 5 years,
respectively. 9. RELATED PARTY TRANSACTIONS The Company receives research, development and technological support from an
entity that is controlled by the Companys majority shareholder. Amounts paid
by the Company for such services amounted to $730,750 in 2003 and $310,000 in
2002. The Company receives administrative support services from an entity that is
indirectly controlled by the Companys majority shareholder. Amounts paid for
such services amounted to $120,000 in 2003 and $120,000 in 2002. Additionally,
the Company was due $31,334 and $40,000 from this entity at December 31, 2003
and 2002, respectively.




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##### 



e-Smart Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements 10. DEPENDENCE UPON CONTROL PERSONS Intermarket Ventures, Inc. and its majority-owned subsidiary, IVI Smart
Technologies, Inc. (Intermarket) collectively own 77% of the Companys
outstanding common shares. Accordingly, Intermarket is in a position to
materially influence the direction of the Company, its efforts in raising the
additional capital critical to its success, and the strategies employed in
commercialization of the licensed technology, assuming the Companys mission is
ultimately successful. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS Cash, related party receivable, accrued expenses and notes payable are subject
to fair value adjustments. The carrying amount approximates fair value because of the short term maturity
of these instruments. Limitations Fair value estimates are made at a specific point in time, based on
relevant information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. 12. NEW ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for new variable interest entities created or acquired after January
31, 2003. For variable interest entities created or acquired prior to February
1, 2003, the provisions of FIN 46 must be applied for the first interim or
annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on the Companys results of operations or financial
position. In April 2003, the FASB issued SFAS Statement No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, which amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. This Statement is effective for contracts entered into or modified
after June 30, 2003, except for certain hedging relationships designed after
June 30, 2003. Most provisions of this Statement should be applied
prospectively. The adoption of this statement is not expected to have a
significant impact on the Companys results of operations or financial
position. In May 2003, the FASB issued SFAS Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable financial
instruments of nonpublic entities, if applicable. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of the Statement and
still existing at the beginning of the interim period of adoption, The adoption
of this statement is not expected to have a significant impact on the Companys
results of operations or financial position.